Ownership reform will allow Cofco Land to become a global firm, chairman says
Cofco Land chief Zhou Zheng says the firm aims to establish a diversified and mixed-ownership shareholding structure and improve its governance to become a truly global company
Zhou Zheng was appointed chairman of Hong Kong-listed Cofco Land last year. He is also chairman of Shenzhen-listed Cofco Property.
Both are property arms of Cofco Group, China’s largest supplier of agricultural products and food, which Zhou joined in the early 1990s and now serves as a vice-president.
Cofco Group was selected two weeks ago as one of the first six central-government-controlled firms to take part in trial reforms aimed at introducing more competition in the state sector and reducing government intervention.
Q: Cofco Group is among a few state-owned enterprises (SOEs) selected by the government to develop property as a core business. What do you think of the reform allowing greater private ownership of SOEs? How will these reforms benefit Cofco Land?
A: The government’s pledge to let the market play a decisive role in allocating resources will speed up healthy development of the property industry.
Cofco Group is one of the original 16, later expanded to 21, state firms controlled by the central government designated by the State-owned Assets Supervision and Administration Commission (Sasac) to develop property as its core business.
We have made a clear strategy [for our property section] and listed the commercial property business in Hong Kong last year, while the A-share listed arm will mainly focus on residential property development.
As part of the SOE reform, we aim to establish a diversified and mixed-ownership shareholding structure and improve our governance to be totally in line with market practice.
Q: Can you elaborate on the mixed-ownership reform you just mentioned?
A: Cofco Land is a red-chip company [a firm that is incorporated outside the mainland and listed in Hong Kong]. We want to introduce two types of investors.
The first group is real estate funds that are confident of Cofco Land’s future development. After the Hong Kong listing, quite a few institutional investors, including big funds, have invested in Cofco Land, such as GIC from Singapore, China Life, Hong Kong’s Nan Fung Group, and China Resources Group. They are strategic financial investors.
The second group is commercial property firms specialising in shopping malls. We have been in talks with some who have expressed interest. Such cooperation can be based on projects, but they can also possibly take a stake in Cofco Land.
In China’s commercial property market, we are now a leading developer and have much room to grow, which is very attractive to global investors. That will enable us to change our equity structure and improve our corporate governance to become a truly global public firm of diversified ownership.
That will also broaden the financial support for our future expansion, and we can also learn from global partners to improve our commercial property development and management.
Q: Sasac has urged other state firms to quit their non-core property businesses. Will you buy their projects when they divest? How will it benefit Cofco Land?
A: Some domestic developers will quit owing to policy reasons or poor management. We will not exclude the possibility of actively seeking cooperation with or even acquisition of peers that have a land bank that fits Cofco Land’s development strategy.
The [divestment by other SOEs of their non-core property businesses] is progressing slowly. We should wait and be patient.
We are now talking to some companies. The key is to be selective. We can’t rush, and we need to look at the location, design and target clients of the projects, if they are already completed.
If the restructuring will be very costly, we need to refrain from taking over such projects.
[For opportunities] in third-tier cities [to acquire existing department stores and shopping malls], we need to look into the local economic structure, the average purchasing power of the people and the commercial property developments there.
We bought the land parcel in Yantai [a city in Shandong province where a Joy City mall was built and is open for business this month] three years ago. It is smaller than first- or second-tier cities, but the purchasing power is increasing rapidly, and market competition was not intensive at that time, with no big national players. So now we are leading the lifestyle of local middle-class families.
Q: Many mainland developers have issued bonds in Hong Kong in recent years. Cofco Land hasn’t yet. Are you planning to do so? Some analysts also expect opportunities in the equity market, as they think mainland property transactions will stabilise in the second half.
A: All are possible this year. Currently we are not in short of funds. Cash flow is positive. In the next step, the group will inject assets into Cofco Land, and we will possibly issue additional shares or new debt.
We also need to buy new land parcels to meet development needs in the next three to five years. So we’ll probably need to raise funds. We will consider all possible equity and debt options.
Hong Kong has advantages in [helping companies raise funds via] bonds and syndicated loans. The cost is cheaper than onshore. It is also a more efficient market.
Q: As an SOE controlled by the central government, do you enjoy any advantages in bank loans?
A: Yes, we do. For example, some developers have to apply to China Construction Bank’s Nanjing branch for loans to support their local projects. We are often in headquarters-to-headquarters deals, which means Cofco Group or Cofco Land can sign loan agreements with the headquarters of any bank.
For example, Cofco Land signed a cooperation pact with the headquarters of Agricultural Bank of China last year. We also share the favourable borrowing rates enjoyed by Cofco Group.
Banks are very supportive of our development loans. Loans for land acquisitions face regulatory restrictions, but when many other developers have to pay premiums of 20-30 per cent over benchmark rates, we don’t. Of course, it’s difficult to enjoy a discount on rates now.